Question

Some companies give their CEOs golden parachutes—large bonuses if the company is sold to an acquirer and the CEO loses his or her job. Does this practice sound like a sensible incentive scheme to you? Why or why not?What are the issues?

Answer 1

Golden parachutes are terms or clauses in an employee's contract which provides heavy benefits to them in case the company decides to downsize or in cases of acquisition and mergers. It allows a company to procure talent which would be lured in through the big offers in the "Golden Parachute" package. It allows the companies to soften their standing in case the company falls and the employee such as the CEO is against the actions and might jeopardize a deal or any particular situation. It presents a lot of opportunities for the company to procure talent but at the same time it also results in company essentially paying an employee/ CEO who have failed in their job and would result in a large amount of money and equity being paid and this becomes troublesome in the case where several employees have to be compensated.

All factors considered golden parachute is a sensible incentive scheme which will allow the company to safeguard itself and also, allow them to procure good talent pool which would, in the normal sense, not be possible.